Mincor Resources

Mincor Resources (MCR) is a small cap nickel-mining company with operations mainly in Western Australia. As the company touts on its website, their operations are debt-free, leaving them free from credit market shenanigans and able to profit from rising commodities prices. Mincor is Australia’s fourth largest nickel producer.

In December 2008, as global markets for base metals (amongst everything else) evaporated, Mincor shuttered their Miitel mine, south of Kambalda, WA. Other resources companies closing mines included BHP Billiton, Xstrata, Minmetals, and Norilsk, so this action could not be considered extreme. As global markets continue recovering, Mincor has initiated a restart of the Miitel mine with production slated to begin as soon as June 2010, the first of the shuttered mines to do so.

Eclipsing that news is the result of recent exploratory activity, which seems to indicate that the Miitel mine may contain a second deposit, potentially as large as the first and therefore doubling the mine’s capacity.

Mincor’s price to earnings ratio is 19.25, with earnings per share of 0.10.

On 21 July 2009, as Mincor announced it had successfully cut costs and increased production, the stock MCR surged roughly 20% in the day, solidifying a bounce from strong support at 1.30–1.35 which was originally a resistance level from August 2006. That surge reached the 52-week high of 2.92 in mid August, before consolidating into a symmetrical triangle that broke to the downside in October.

The price action retracted back to touch and respect the support level, forming what may prove to be the left shoulder of a head and shoulders formation in the process, as shown on the analysed chart, below:

From the 1.35 support level, the price again bounced, this time to a lower high at 2.34, reached 12 April 2010 and possibly the head of the potential chart formation. This level also establishes the resistance for a bearish trendline, which has the potential to channel the price action lower into a descending long-term triangle.

The technical setup is perfect for both formations—the head and shoulders and the descending triangle, both of which are likely to re-test support at 1.35 (also the neckline or measured move) in a meaningful way. Traders should watch for the price to rise back toward the 2.00 level and establish the right shoulder of the head and shoulders (price currently at 1.95). It can then be expected to return to the support/neckline.

Only a significant break below 1.30 will confirm the move lower that’s implied by both the head and shoulders and descending triangle.

Note that the slow stochastic shows both the %K and %D lines well above the overbought 80 level. As well, the %K remains above the %D. MCR is not in a good position to trade the stochastic crossover as a short, as analysis from the formation of the head indicates this stock can keep both readings above 80 for a significant length of time.

technical analysis by Craig Liles